Lebanon’s forex reserves recover from Hariri’s resignation
Lebanon’s foreign-currency reserves have recovered from the shock of Prime Minister Saad Hariri’s surprise resignation, proving the resiliency of the country’s financial system, Central Bank Governor Riad Salameh said.
Reserves fell to about $41.5 billion from more than $43bn at the end of October after Hariri’s November 4 resignation from Saudi Arabia, Mr Salameh said.
The political crisis roiled markets in the Arab world’s most indebted country, raising its credit risk and sending bond yields soaring. Reserves rebounded after Mr Hariri retracted his resignation a month later.
“We are back at over $43bn,” Mr Salameh said.
Lebanon relies on private-sector bank deposits to maintain the stability of its banks, allowing them to buy government debt. Deposits were growing at 7 per cent annually through the end of October, but ended the year up 3.8 per cent after outflows of $2bn in November, he said.
Money returned gradually, with inflows exceeding outflows since December 10, he said, declining to give a fullyear forecast.
Mr Salameh’s remarks appear designed to reassure investors after the International Monetary Fund last week called on Lebanon to urgently rein in its ballooning public debt, which the fund said could reach 180 per cent of economic output in 2023 from 150 per cent at the end of last year. For Lebanon to maintain its pegged exchange rate to the dollar, a “significant fiscal adjustment is inescapable,” it said.
“The central bank has been calling all the time for reforms and I hope they will happen,” Mr Salameh said.
“I cannot speak for the government.”
Some Lebanese banks, which hold the majority of government debt, raised interest rates on local-currency deposits to attract customers.
Lebanon is also grappling with an influx of more than 1.5 million Syrian refugees and US pressure to cut the Iranian-backed Hezbollah group out of the banking system. Aftereffects of the 1975-1990 civil war continue to taint governance with corruption and a disregard for laws and regulations.
Mr Salameh, a former Merrill Lynch banker, said outflows in November were proportionally lower than during two other big crises – the 2005 assassination of Prime Minister Rafiq Hariri and the 2006 war with Israel. The recovery in reserves showed that confidence is “stronger after the crisis,” he said.
He also made the distinction between last week’s IMF staff report and another that will follow the Washington-based lender’s board meeting in May or June. “This is the opinion of the staff. It’s not the opinion of the IMF,” he said.